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Is the Bitcoin course in a phase of consolidation?

It can be said that the Bitcoin course is currently in a phase of consolidation. In the event of a significant increase, dominance would probably follow suit and funds would be withdrawn from the Altcoins. Currently, however, it is more likely that the slightly negative downtrend will continue. The Bitcoin Exchange Net Flow indicator is currently still negative.

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Bitcoin is currently in an exciting phase. After the first few months of the year were dominated by COVID-19, the slow recovery is beginning to take hold both socially and on the financial markets. In the past few days Bitcoin has been pleased about two extremely contrary impulses from the financial world – Goldman Sachs and JP Morgan.

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Both major banks commented on Bitcoin and its characteristics

While JP Morgan considers Bitcoin’s price to be undervalued and sees a current fair price of $11,593, its competitor Goldman Sachs took a contrary position. In a private investor call by Goldman Sachs, BTC was compared with common assets (bonds and other stocks). One of the disadvantages mentioned was the “inability” of Bitcoins to generate cash flow. To put it differently: BTC, unlike bonds, does not generate returns and, unlike shares, does not pay dividends.

Although the statement is formally correct, there is no basic understanding that Bitcoin is not a security (share) and, therefore, should not be compared with this asset class. Surprisingly, Goldman Sachs continues to serve the narrative of “illegal money used for criminal purposes.” Of course, in a presentation of this kind, overflowing with competence, the obligatory comparison with the tulip bubble should not be missing.

Last, but not least, the reminder that Goldman Sachs suddenly recommended its clients to buy Bitcoin in 2019 at a price level of $10,000 – 13,000, says it all.

Bitcoin price correlation with the S&P 500

The correlation between the Bitcoin price with the American stock index S&P500 has decreased in the short term. Nevertheless, the correlation is still there. Especially compared to last year, a massive increase can be seen since February this year. Since the annual low, Bitcoin has almost doubled its price. The S&P500 rose again by 35%. So both assets could record positive growth.

The question from these price rises is probably whether we are now witnessing a moment when many investors are taking the short-term gains and are therefore facing another drop?

Bitcoin dominance: the significance of the Altcoins increases

The last report was still dominated by Bitcoin Halving. BTC was able to increase its price and outperform many of the old coins. As a consequence, its dominance increased. The increase in dominance is only of a short-term nature and that soon a shift to the Altcoins could be seen.

The dominance has decreased by about 1% in the last 2 weeks. That is not a massive decline but shows a consolidation in the Bitcoin price. If the consolidation of the price or a sideways movement continues for a longer period of time, it is likely that money will flow in the direction of the Altcoins, as higher yields are waiting there in the short term.

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As long as Bitcoin does not break out (e.g. above the $10,000 mark), this pattern is unlikely to be reversed.

Spent Output Profit Ratio (SOPR): Who is in the profit zone?

The SOPR indicator is an easy to understand indicator. It considers how many investors are currently in the profit or loss zone. If the indicator is above a value of 1, more investors are in the profit zone than in the loss zone. A value of 1 means that the majority is at a break-even point.

The value is rising back towards the 1.0 level. This can be explained by the fact that many investors want to take their profits with them. The question at the 1.0 level is whether investors are willing to sell if they take a loss and thus push the indicator further down, or whether they hold their coins.

In the past, the movement towards the 1.0 level has usually proven to be relevant as it has been followed by either a massive up or down movement. A possible scenario is a further decrease of the indicator (=bitcoin price drops) towards the 1.0 level. From this level, a renewed rise takes place. Realistically, however, no precise forecasts can be made.

BTC Netflow: How do investors behave?

The Bitcoin Exchange Net Flow indicator is a very good indicator to assess the available supply and liquidity.

Currently, the indicator is still negative. That means that more people withdraw their Bitcoin from Exchanges compared to the amount deposited. Although the market is moving towards equilibrium, there can currently be seen a slight tendency for supply reduction.

Ethereum and the Exchange Net Flow

A look at the indicator for the second-largest Altcoin, Ethereum is also important. A much stronger picture in the direction of withdrawals can be seen. This means that significantly more ETH are withdrawn from Exchanges than they flow into them.

On the other hand, it must be stressed that there cannot be drawn any conclusions about their use. So it cannot be said explicitly whether the ETH are flowing to a wallet, a decentralized exchange, or dApps.

Conclusion on the calendar week

Bitcoin is on everyone’s lips – at least in the financial sector. The largest banks in the world (Goldman Sachs and JP Morgan) cannot avoid reporting on Bitcoin. While some see BTC as an opportunity and want to use it for themselves, others do not see Bitcoin as a reasonable asset. However, Goldman Sachs has shown with the current presentation how quickly a reversal of its own opinion can be achieved. They also showed ignorance of the properties of Bitcoin and in some cases used quite disconcerting arguments (keyword: illegal activities).

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It can be said that the Bitcoin course is currently in a phase of consolidation. In the event of a significant increase, dominance would probably follow suit, and funds would be withdrawn from the Altcoins. Currently, however, it is more likely that the slightly negative downtrend will continue. The on-chain data showed that a little more Bitcoin is being withdrawn from exchanges and that the available supply is thus declining. At the same time, the latest Grayscale report also showed that the supply of available BTC through mining is not sufficient to satisfy the high demand.

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(Featured image by geralt via Pixabay)

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First published in CRYPTO MONDAY, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Daphne Freeman has worked in the crowdfunding and impact investing industry for the past few years, gaining experience in marketing, and connecting businesses and entrepreneurs in need with the right investors. As a seasoned grant writer as well as financial market journalist, she is passionate about making a social impact in the world. A free spirit, Daphne also enjoys writing and exploring topics of interest, currently CBD, health and beauty, and social media influencers.